Leadership result combinations

A certain online betting agency is currently offering $1.07 for a Coalition win and $7.80 for a Labor one. The implied odds are (rounded) 88 per cent and 12 per cent respectively.

I put it a bit closer than that.

Some people insist betting markets are better “predictors” of election results than opinion polls, but the “evidence” they present generally rests on the straw man that the polls are, well, literally “predictors”.

The betting markets are, instead, a distillation of general expectations, and those general expectations are usually about right, but sometimes they’re wrong. And they are almost wholly determined by the opinion polls, directly and indirectly.

When for example a commentator announces they can “sense a mood for change” what they usually mean is they’ve seen the polls and read and seen all the general opinion that is also influenced by the polls.

Betting markets remained wrong about the changes of government in WA in 2008 and Victoria in 2010 right up until they closed on election morning. That was because the polls only turned in the last week and the markets move slowly. They require lots of polls before they change their minds.

At other times they are wrong until they become right. General expectations of the 2007 federal result turned around several months after Kevin Rudd became Labor leader in December 2006. After thumping opinion poll lead after thumping lead, the penny finally dropped that John Howard might be a political mortal after all.

Then observers could see more clearly that Howard was making mistakes. He had somehow “lost his touch”.

2001 was another example, when the markets greatly favoured the ALP early in the year and then later greatly favoured the Coalition.

I have witnessed defenders of “punters know best” argue that actually it was reasonable in early 2001 to believe Labor would win, so the punters weren’t really wrong. The circularity of that defence renders the whole claim pointless.

I’ve put it like this before: punters don’t know better than polls, they dawdle after the polls.

They are sheep. Baaah.

Here is a picture of some sheep.
Anyway, the biggest individual contributer to this year’s election result will be: who is leading the Labor party.

The table below shows what punters at that certain online agency believe about who will lead the ALP at the next election. The third column gives the implied odds from their dollar amounts and the last column is my rough estimate of that person’s odds of becoming leader.

(I put 3.1 for “any other” to make it add to 100.)
So I roughly agree with punters that Julia Gillard’s chances of remaining leader are (about) 50-50. But if they do remove her I reckon despite Rudd’s unequivocal statement about never accepting the leadership there’s about a 50-50 chance they’ll bring him back, which makes his overall odds 25.

I give Simon “the nightwatchman” Crean about 15 per cent, meaning that if Gillard departs he has a 30 per cent chance of replacing her. (That is, .5 x .3 = .15)

And Stephen Smith about 5 per cent overall.

Now, if there is no change of leadership before the election, I reckon Labor has one chance in 10 of winning. If Rudd becomes leader I believe they have a 50-50 chance.

So all up there’s a 12.5 per cent chance (.5 x .5 x .5) that when Rudd celebrates Christmas this year it will be as prime minister of Australia.

And Gillard’s chances of doing that are 5 per cent. That’s her chance of surviving in the position, .5, times her chances of success, .1).

Life is too short to go through all the other possibilities. OK, just two more.

The next most likely to succeed at the election, if he were leader, is Stephen Smith. I give him one chance in five of winning. (His chances would be greater if not for the fact that, apart from Gillard, Smith’s leadership represents Wayne Swan’s best chance of remaining treasurer. Swan in treasury is a drag on the government’s chances, and part of the reason they are so low under Gillard.)

But Smith’s chances of becoming leader are only one in twenty.

Crean’s chances of winning the election, if he becomes leader, are, say, one in six (there’s a greater chance of Swan departing treasury if Crean becomes leader) and my estimate of his chances of being leader are 15 per cent.

This comes to 2.5 per cent possibility of a Crean prime ministership at Christmas and a 1 per cent Smith one. We add them to Rudd’s 12.5 and Gillard’s 5 and we get 21 per cent. The combined odds for the rest of the candidates are very small, let’s say another 1 or 2 per cent in total. Make it 2.

So a 23 per cent chance of a Labor win this year. Not quite one in four but better than one in five.

That is, the Coalition has a 77 per cent chance of success. Because this is just a guesstimate I’ll round it down to 75 per cent.

Obviously the punters don’t agree, they make it almost 90.

But you know what I think of them.

Baaah.

Comments short and on-topic please.

Update: from now on I’ll be liberally applying the snip to comments that address other comments without really adding anything. So jokes about other comments “you have got to be joking, ha ha .. “ etc unless extremely funny (in my opinion) will not get through. Nor pleasant little exchanges directed to individual commenters without substance relevant to the post. I don’t want to moderate that stuff. Thank you.

Up-update: A few commenters reckon my 50-50 Rudd assessment (Labor’s chances of victory if he were leader) represents a backdown on previous suggestions that his return to the leadership would mean Abbott either loses the leadership or loses the election.

Not so. I thought it was evident, but: I believe Rudd would (very) likely prevail against Abbott if they were both leaders at the election. But that 50-50 takes into account the likelihood (in my view) that Abbott loses his job and Rudd has to face someone electable, with all the goodwill inevitably flowing to the new opposition leader.

I suppose the 50-50 overall implies I slightly favour the Coalition under the non-Abbott leadership.

Your Comments

Policies might have something to do with it as they roll out. So far it is Labor 2-0
Labor has won the NBN debate
The Libs have ditched Gonski....a possible win there for Labor
You are right though. Labor cannot win with Swan and Gillard no matter how many policy wars they win.
If you count carbon tax V direct action as a way of approaching global warming it could be 3 Zilch? I believe the figures will even up a bit as the debates start along with the “real” campaign. Abbott also said for the 1st time last week his government will inflict a lot of pain. I find that a VERY interesting statement. For him to publicly state that is heavy language.

dovifMon 22 Apr 13 (01:25pm)

Last weekend marked the fifth time over the last 5 budget that the ALP under Swan had to revise down their revenue estimation in the budget.

Unless time is going well, most Australians tend to put the economy in the hands of the better economic managers. For Australians, this is the Liberals. I believe that the economy will not get better significantly over the next 4 months for the ALP to win the next election. I give them about 5%

Ralph WiggumMon 22 Apr 13 (01:31pm)

Those are some good looking sheep. If one of them were leading the Labor Party what do you think the betting markets would be saying?

Uncle QuentinMon 22 Apr 13 (01:33pm)

Yes, if the odds are so good why are there so few successful gamblers?

I love the picture of the sheep though. I think the petite one at the front on the right hand side is quite cute.

David drives a 4WD, tooMon 22 Apr 13 (01:48pm)

Mumbles,

The expressions on the faces of those cute sheep reminds me of an earlier photo you posted on “The Nodding Position”

2 things- A photo of ABC journalists would have been a good photo as the group think inherent there is akin to sheep following each other.
2nd-stop kidding yourself about Rudd-Abbott will still beat him at an election though instead of the 56-44 wipeout we are likely to see under Gillard it will be more like a 52-48 wipeout.
The ALP as a whole are perceived as incompetent, spinning liars and nothing they can do will change that perception this side of an election.

Melbourne BoyMon 22 Apr 13 (01:59pm)

Bassman -22 Apr 13 (12:12pm)
Labor has lost the economic debate (rightly or wrongly - but mainly due to Wayne Swan protraying a sense that he doesn’t understand ecomonics) so the costs of Gonski and the NBN also become losses in regards to balancing the budget.

Peter BrentMon 22 Apr 13 (02:00pm)

NBN doesn’t come off the budget. But let’s not go there.

MarkMon 22 Apr 13 (02:01pm)

You should be loading up on the ALP then Peter.

You have calculated the ALP is well over the odds, time to strike is now.

DBMon 22 Apr 13 (02:03pm)

BASSMAN
Mon 22 Apr 13 (12:12pm

You are right, but the Liberals are being strategic in getting their weaker policies out first i.e. NBN and IR, whereas the Government are getting out their strongest i.e. Gonski and NBN. Theoretically, the opposition should get a hit in the polls, but so far it hasn’t been the case. Perhaps after the IR policy is released in the next fortnight, this will occur.

I think the far greater danger for the Government which I have been banging on about for a while, is the budget. If they forecast deficits for 4 years out after promising a surplus in 2012/13, no matter how they try and paint it (particularly the master salesman Swan), they will be heavily punished. Whether it be right or wrong, this is how it will be interpreted in the media and conveyed to the public.

wilkoMon 22 Apr 13 (02:05pm)

I’m curious how you came up with the percentages as I was taught: (i) implied probability is calculated as 1 divided by the decimal odds, e.g. for Julia Gillard 1 divided by 1.42 equals 70.4% chance of being leader and not 51.5%, and (ii) that the total probabilities will always be greater than 100%, otherwise there’s no margin for the bookie…

Peter BrentMon 22 Apr 13 (02:08pm)

The calculations I use take into account the bookie’s margin. They are not the odds being offered, which is what you have calculated, but the, well, implied probability.

DBMon 22 Apr 13 (02:06pm)

As to odds, I reckon Labor has about a 20-25% chance of winning. Probably because:
- they can change leaders
- Abbott could implode
- another external factor could impact which results in a shift back to the Government.

$7.80 are reasonable odds in my view. Wonder if some punters here have done better than this?

AnnieMon 22 Apr 13 (02:07pm)

Thank You for posting a picture of our Parliament. I am with the bookies. The bookies are there for one reason only, to make a buck, the polls can be forgiven for a stuff up and have been previously, however if a bookie stuffs up he can find himself in the bankrupt court. I go with the bookies they have too much to lose. By Sept, Abbott ( unless he is caught in a relationship with one of the above sheep), will be the same odds as Black Caviar, with Gillard the same odds as Oakeshott and Windsor. Zilch.

L.Howarth.Mon 22 Apr 13 (02:18pm)

Forget the odds , what,s the camera operator up to ? Those sheep look very attentive .

JBMon 22 Apr 13 (02:27pm)

Just a theory but…
Those on the conservative side of politics have more money.
You are probably more likely to punt on your own side of politics than the other. (More likely you are probably more likely to punt on your own side of politics when they are likely to win and not punt at all when they are likely to lose).
Therefore, the bets placed for the coalition are larger than those placed for the ALP.
Therefore, the betting market is skewed to the coalition.
Any merit in this theory when comparing markets to elections over a decent sample of elections?

Peter BrentMon 22 Apr 13 (02:33pm)

It’s an interesting one, and assumes wishful thinking on both sides, which is of course possible. I don’t think it’s really testable, however.

Steve DuneraMon 22 Apr 13 (02:28pm)

The claim that betting markets are better than polls is not necessary for them to be very useful. It’s a bit like the Efficient Markets Hypothesis. Whether markets are perfect or useful is maybe something for academics to get excited about, but markets are still incredibly useful.

They provide a summary of what people think weighted by how strongly people think it.

There is research on the topic of bettings odds. Andrew Leigh, member for Fraser, and, let us hope, Treasurer at some point, wrote a paper on it for those interested:

You can read Mumble, pollytics, pollyquant and a load of news and opinion pieces, talk to people and essentially follow politics as a sport. This is what people who comment here regularly do. That’s what we enjoy.

Or, to be close to just as informed on the outcome of the next election and spending far, far less time you can have some idea of the polls and look at the betting odds and implied probabilities.

Based on your disagreement with the odds, I take it you are going to put money on Labor winning?

Peter BrentMon 22 Apr 13 (02:38pm)

No, because I expect them to lose.

kmeMon 22 Apr 13 (02:36pm)

Annie, the bookies make money no matter which way the result goes. As a wise man once said, “The over-round (Vigorish, or simply “vig”, or “juice") is what gives the bookmaker his profit, his sun tan and his cigars.”

EdMon 22 Apr 13 (02:36pm)

I put Labor’s chances as the same as one of those sheep breaking free from the pack to lead - that is 3/5 of 5/8 of FA (that is almost 0, FA does not stand for Football Association). Nice photo Mumbles

SteveMon 22 Apr 13 (02:44pm)

How “deep” is the election betting market? By this, I mean to ask how easily can published odds be influenced by a small number of significant bets?

Peter BrentMon 22 Apr 13 (02:59pm)

The overall result one would be deep, not so much the leadership ones. But I don’t know, of course, how long this piece of string is.

virgon6Mon 22 Apr 13 (02:51pm)

Mumble, thanks for the caption giving us the correct label for that picture of animals.

Watching Ms Gillard last week in one her few 7.30 report interviews, the body language (her voice almost cracked on my count about twice) suggests that all is not well behind the scenes for her.

The Rudd non-challenge wasn’t fun for a lot in caucus or on the front bench - so there might be internal issues in the Labor benches after a masterful perfomance by Wayne in the Budget. So it may be one of the leaders down the list. I reckon Crean to limit the damage. But he won’t win.

“The race doesn’t always go to the swift, or the battle to the strong - but that is the way to bet” - Kerry Packer.

WINEDIAMONDMon 22 Apr 13 (02:54pm)

Prof
Sorry don’t agree with your premise that leadership is a factor anymore. Except in VIC, & SA where the anti govt vote is “soft”. Like wise the “Abbott sceptics” have been expecting him to “implode” for years. Hasn’t happened. It is all to late for this govt.
I give them no chance at all. I will be betting a few grand to fund a bottle of Dom Perignon 2002 on election night !!!.
PS Warning the 2003 vintage is rubbish so avoid it

The unflushable plebMon 22 Apr 13 (02:58pm)

There was a time when even a drovers dog could win for Labor.
That sheep on the left looks… kinda… cute.

SleetmuteMon 22 Apr 13 (03:29pm)

You used to say that if Rudd got in, Labor would have a strong chance of winning and an even stronger chance if Abbott was still in charge. Now you’re saying Rudd’s probability of winning is 50-50. Is that because it’s getting closer to the election so moving to Rudd would look more desperate and/or he won’t have enough time to turn the ship around? Because other things being equal, Rudd coming in now would leave the Coalition less time to get rid of Abbott, so Rudd’s conditional probability of winning should be higher than it was before.

Peter BrentMon 22 Apr 13 (03:42pm)

The mess of the aborted spill must have decreased chances of victory, regardless of who is leader. And I believe I never put Rudd’s chances of winning at greater than 50-50, I never quantified it or said it was more likely than not.

IanMon 22 Apr 13 (03:33pm)

Dr Brent-if you or I were making a thesis or an essay or whatever on opinion polls we, well I as can really only speak for myself, might well make comment on seeing one proposition regarding opinion polls being dismissed and then the same proposition being supported In your blog of April 16th in which you were advancing the proposition that opinion polls did not influence voting intention, you wrote “but bad opinion polls won’t cause the Gillard government to lose this year’s election and neither will the wide expectation of it. Both are symptoms not causes”

Today you write “General expectations of the 2007 federal result turned around several months after Kevin Rudd became Labor leader in December 2006. After thumping opinion poll lead after thumping lead, the penny finally dropped that John Howard might be a political mortal after all.” and “I’ve put it like this before: punters don’t know better than polls, they dawdle after the polls.”

I know I’ve been selective but I do think that to some extent you’re walking on both sides of the street,

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Peter Brent

Peter Brent started Mumble in 2001; the old site can be found at http://mumble.com.au. He mainly goes on about the numbers in electoral behaviour and voters' motivations that drive them. In 2009 he finished a PhD in political science which dealt with electoral administration, a topic he also sometimes goes on about. You can follow him on Twitter at @mumbletwits.